Wednesday, 31 August 2016

More than 8.1 million
people worldwide are now employed in the renewable energy industry, according
to this
report from IRENA. One way to look at it is to say, isn't it wonderful that
there's been over 8 million jobs created in that sector? The economist's way to
look at it is to say, isn't it hugely costly to pay for all this, therefore
does it provide value?

The reason the economic
analysis is right and the other analysis wrong is down to the understanding
that natural resources are limited, as is human labour, and expenditure on this
industry is expenditure that could be going elsewhere. Of course, if the renewable
energy industry creates a net value to society then no problem. But does it?

It's unlikely that it
does, because to say it does means to say that we are being made as well off as
possible by applying those scarce resources in that industry. Think about that
for a moment. Prices are not just about signalling the value of resources, they
are a coordinated attempt to share by allocating resources most efficiently.

Those who want to use
steel for engines must bid against those who want to use it for filing
cabinets, ovens and keys. Those who want to use oil for petrol must bid against
those who want to use it for weed killer, motorcycle helmets and drinks
bottles. Even if the British government created a law to say that petrol,
motorcycle helmets and drinks bottles are a basic human right for everyone in
the UK,
it would not change the fact that resource-allocations are bound by laws of
supply and demand.

The market then is not
just the billions of mutually beneficial transactions going on everyday across
the world; it is the pattern of how people use limited resources that could be
used for other things. Because people can make a living providing weed killer, motorcycle
helmets, filing cabinets and engines, we know that suppliers have done the bidding
for those resources competitively in a way that assents to consumer demand.

This doesn't happen with
anything like the same extent with the renewable energy industry - much of the
demand was created artificially by government mandates, lobby groups and
international protocols. I'm not for one moment saying that the industry
doesn't provide things people willingly buy - but it's very likely the case that the
8.1 million jobs and concomitant resources in the renewable energy industry is
likely to be quite severe in opportunity costs, where there is significant loss
from the potential gain that could have been attained from alternative uses of
those resources.

Put it to the test

To show why this probably
is the case, you only have to apply the following question to yourself: how
often do you voluntarily spend your own money on something in order to make the
energy humans use more efficient? The answer, for the vast majority of you,
will be - not very often. Don't get me wrong, I'm sure many of you try to buy
green-friendly products, and are mindful of recycling. And we all pay green taxes
when we consume the world's natural resources.

But the reality is, most
people wouldn't voluntarily spend too many extra resources on conjoining themselves to the pursuit of a greener environment. I'm sure many would tell
you that's not the case - but economics is more interested in actions than
words, and people's buying habits tell you that generally they care more about the
consumer surplus attached to their fuel, paper, wood and metal products than
they do about investing in renewable energy. To that end, there are bound to be plenty
of deadweight losses attached to the renewable energy industry.

About Me

This is the Blog of James Knight - a keen philosophical commentator on many subjects.
My primary areas of interest are: philosophy, economics, politics, mathematics, physics, biology, chemistry, theology, psychology, history, the arts and social commentary.
I also contribute articles to the Adam Smith Institute and the Institute of Economics Affairs.
Hope you enjoy this blog! Always happy to hear from old friends and new!
Email:j.knight423@btinternet.com